Series 24: Locate And Delivery Requirements For Short Sales

Locate and Delivery Requirements for Short Sales

Rule 203 states that before a broker-dealer can execute a short sale, it must locate the securities that will be borrowed to cover the short sale. In this context, “locate” means:

• • The securities have already been borrowed or there is a bona fide agreement to borrow the securities.
• • The broker-dealer has “reasonable grounds” to believe that the security can be borrowed by the settlement date.
• • The broker-dealer has documented these locate requirements.

A broker-dealer can presume to have reasonable grounds that a security is available for borrowing if the security is documented on a firm’s “Easy to Borrow” list. In order for a broker-dealer to rely on such a list, however, the information it contains must be no more than 24 hours old, and